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2002 Fall Bulletin

MORE TAXES WON’T FIX GRIDLOCK!

On Tuesday, November 5, 2002, citizens in the
counties of Arlington, Fairfax, Loudoun, and Prince William and in the
cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas
Park will be asked to vote for or against increasing the sales tax from
4 1/2 cents to 5 cents for transportation.

Myths and facts about the sales tax hike

MYTH: The tax hike will end gridlock.

FACT: The
pro-tax group, Citizens for Better Transportation, states in their June
21 fundraising letter that the tax hike is only a "first step". Of the
current 4_-cent sales tax, one-half cent is already dedicated to
transportation, and that did not end gridlock.

MYTH: The tax hike provides $5 billion for transportation.

FACT: This amount is what will be available over 20 years and
is a fraction of what transportation will cost over that period.
According to the pro-tax Northern Virginia Transportation Alliance, the
half-penny increase "..… barely dents the region's annual shortfall."
Also, much of the money is obtained by selling bonds. After twenty
years taxpayers will still owe $2.6 billion on those bonds.

MYTH: The sales tax increase will cost the average family only 25 cents a day.

FACT: This
assumes a two-person family. It also excludes sales taxes paid by
businesses and nonresidents. However, businesses pass their taxes on to
the consumer, and higher taxes discourage nonresident shoppers. A
family of four now pays, directly or indirectly, about $2700
per year in sales taxes. Proponents say the tax hike would raise $140
million from 1.9 million residents. That would increase the sales taxes
paid by a family of four to about $3000 per year.

MYTH: The sales tax hike funds 24 specific transportation projects.

FACT: It partially funds
those projects. Completing the projects would require additional tax
hikes. For example, the sales tax pays $350 million for rail to Dulles,
whose total cost is $3 billion. Additional funding is slated to come
from doubling tolls on the Dulles Toll road and increasing commercial
real estate taxes.

MYTH: The sales tax hike will be "dedicated" to transportation.

FACT: To
balance the budget, the state this year transferred from the
transportation fund to general government $317 million of revenue from
the _-cent sales tax that is already "dedicated" to transportation. To
cover up the transfer, the state is replacing the money by borrowing
against future federal transportation revenues. Governor Warner has
explicitly refused to rule out doing the same thing next year.

MYTH: By law, the revenue will stay in Northern Virginia.

FACT: Unless
it is written into the state constitution, the legislature can change a
law with a majority vote, as they did this year with the $317 million
in "dedicated" transportation taxes. You cannot always trust
politicians.

MYTH: There’s not enough tax revenue.

FACT: This year’s state budget has $2 billion more than needed to keep up with inflation and population growth since 1992.

The state’s so-called budget crisis exists
because the state based its spending on unrealistically high revenue
projections made during the "dot-com" boom. Also, Fairfax County
revenues are at an all-time high. Fairfax County real estate taxes for
the typical household have increased 37 percent in just three years. A
fourth big increase is likely next year.

MYTH: Real estate taxes and state income taxes are spent on transportation.

FACT: Income
and real estate taxes, which are the major sources of state and local
revenue, are NOT spent on transportation. They are monopolized by
education and welfare. While Fairfax County school staff has increased
four times faster than enrollment (and SAT scores remained at the 65th
percentile) and while welfare spending has mushroomed,
inflation-adjusted transportation spending per resident is the same now
as it was in 1979. To end gridlock, transportation must be allowed to
compete against wasteful social programs for income and real estate
taxes.

You may download this one-page flyer from the FCTA website

http://fcta.org/PDF/H20020920ref.pdf

Fairfax County household tax burden up 20 percent in ten years - after inflationCitizens pay higher taxes for crowded schools and crowded roads

FCTA Press Release dated September 24, 2002

Arthur G. Purves, president of the Fairfax County
Taxpayers Alliance (FCTA), announced today that an FCTA analysis shows
that the typical Fairfax County household is paying $1700 more per year
(or nearly $5 more per day) in state and county taxes than it paid ten
years ago. This is despite the decline in revenues following the
"dot-com" collapse and is adjusted for inflation. With inflation the
typical household is paying nearly $3300 more per year or $10 more per
day. This includes sales, personal property, real estate, and state
income taxes. Fairfax County real estate tax increases have also
completely wiped out the savings from the car-tax reduction. The
so-called car tax cut masked a 20-percent increase in state and county
taxes.

Mr. Purves stated, "This 20-percent tax increase
generates an extra $600 million per year from Fairfax County alone.
Almost none of it went to transportation. All income and real estate
taxes and 90 percent of sales taxes are off-limits to transportation.
The bulk of these taxes goes to schools, which have not improved, and
welfare, which encourages out-of-wedlock births. What improved as a
result of the extra $600 million in taxes? The sales tax referendum rewards government for neglecting transportation during a period of enormous revenue increases."

See other FCTA press releases posted on www.fcta.org

PERSPECTIVE

An analysis by Virginia’s newest state senator

What are we fighting for? Is it just a half penny? How are we doing?

Don’t kid yourself. We are fighting more than
just a _-cent sales tax increase. We are fighting to determine the
direction of the Virginia state budget for the next several years. Your
efforts in this fight will redound to the benefit of smaller government
for years to come.

Governor Warner and his tax-hiking allies in the
General Assembly are watching the referendum to gauge public sentiment
for more tax increases. Will we close the current budget gap with
spending cuts or tax increases? The answer to that question hangs
heavily on the outcome of the referendum. If you want to slow the
growth of Virginia government, then the single most effective thing
that you can do right now is to fight the referendum.

Our opponents will outspend us by vast sums, but
they still have an uphill battle if we maintain our grassroots efforts.
The reason is simple — the more people are educated about the
referendum, the more they vote NO. Your efforts are gradually turning
more and more people against the tax. The real key is not how much
money each side raises; it is simply a question of getting our message
communicated to enough people who will in turn talk to other people,
etc. This is a classic grassroots effort — you are the key to success —
and so far, you are getting the job done.

We are confronted with opponents that have a
strong financial incentive to push the tax through, as they are going
to make a lot of money off the the Northern Virginia Transportation
Authority (NVTA)! Don’t be shy about telling folks that… but for all
their money and effort, they are losing ground to us.

A reporter called me the day the Mason Dixon poll
came out showing the referendum up 52-39. I was not aware of the poll
until she called, and she asked what I thought about those numbers. I
said loudly "That’s great!" She was stunned. I explained that in my
race, with a much more anti-tax sample than the Mason Dixon poll (37th
Sen. vs. all 9 jurisdictions), the referendum polled ahead 24 points
(in early July)… and I won by 10 points with my opponent blaming her
loss on the referendum! I told the reporter that for the other side to
have a decent chance of winning, they needed to be up by more than 20
points going into election day. We’re ahead folks! Keep fighting and we
will win!

The Honorable Ken Cuccinelli
Virginia State Senate
37th Senate District
**Sen. Cuccinelli was elected August 6, 2002.

NotableQuotable

October 10, 2001 debate between now-Gov. Warner and Republican Attorney General Mark Earley:

State Transportation Secretary Whittington Clement, quoted in the Danville Register and Bee, 7/25/02:

"Passage
of those regional referenda is very important for rural areas . . .
Without passage [of the tax hike], there will be renewed pressure to
change the formula to shift money to our more congested areas."

Virginia’s Bogus Budget Crisis

Chart 1:Governor Warner has proclaimed a
budget crisis because recent projections of state revenue (middle line)
- made August, 2002 — are much less than the projections (top line) -
made December, 2000 - that were available when Warner was running for
governor. However, the state budget has grown much faster than was
required to keep up with population and inflation (the bottom line). If
the state had limited expenditures to the amount required to keep up
with population and inflation, there would have been a $2 billion
budget surplus this year, more than enough to pay for the $900 million
car-tax rebate.

Chart 2: This is the same as the previous
chart with two additions: It also shows revenue projections made in
December, 1996, before the "dot-com bubble" and projections made in
December 2001. The currently projected revenues for FY2003 are still
$700 million more than the revenues that had been projected in 1996. If
the state had limited expenditures during the dot-com boom to the
amounts projected before the boom, there would have been a $700 million
budget surplus this year instead of a "budget crisis".

The 1996 revenue forecast was forgotten, and
legislators started spending more, simply because it was available.
Virginia’s budget crisis is a spending crisis! Even after the car-tax
rebate, Governor Warner has $1 billion more than is needed to pay for
population growth and inflation since 1992.

State Senator Bill BollingSenator Bolling, who is planning to run for
Lieutenant Governor, was one of only seven state senators (out of 40)
who earned a perfect score on the FCTA legislative scorecard.

State Senator Ken CuccinelliSenator Cuccinelli recently won a special state-senate election on an anti-sales-tax-hike platformTim Hugo — anti-tax-hikecandidate -- 40th Delegate District

Menu Selections
Vegetarian Platter- London Broil — Chicken Cordon Bleu
Cost: $16 per person
We must give the restaurant a headcount by Wednesday, October 23.
Please RSVP by voice mail (703-642-5567) or email (meeting@fcta.org)
no later than Monday, October 21.
Please provide name, menu selection for each attendee, and phone number.
Stop-the-tax-hike flyers and yard signs will be available.

Vote "NO" on all bond referenda
Excessive bond sales have eroded county and state leverage

On November 5, voters will be asked to vote on both Virginia and Fairfax County bond referenda.
Vote "NO" on both.

Selling bonds is how government borrows money. Bonds
are to government what a mortgage is to an individual. To pay off a
mortgage, the individual makes periodic mortgage payments, which
incrementally pay back the money borrowed (capital) plus interest.
For government bonds, the mortgage payment is called "debt service."

The purpose of borrowing is to obtain an amount
of money that is many times, generally ten times, larger than the
annual debt service payment. This is called "leverage." The greater the
amount borrowed compared to the debt service, the greater the leverage.

Interest is the price of leverage. Leverage
should be about ten, i.e., bond revenues should be about ten times the
annual debt service. High leverage, however, is obtained by not selling
more bonds until current bonds are paid off.

As the following charts show, both Fairfax County
and the state sell bonds annually. The result is almost no leverage.
Fairfax County’s highest leverage in the last 12 years was "2", in 1989.

The state of Virginia has obtained higher
leverage than Fairfax County over the last ten years. However, the
state’s highest leverage was only "3", in 1993.

This means that taxpayers are paying higher taxes
for hundreds of millions of dollar of interest for bonds that have
little or no leverage.

In Fairfax County’s case, annual bond sales
provide just about enough money to pay the debt service. This year the
county will pay about $200 million in debt service. Since each penny of
the $1.21 real estate tax rate generates $11 million in county revenue,
debt service on county debt accounts for about 18 cents of the $1.21
rate. Of the 18 cents, six cents is for interest. The remaining 12
cents pays for principal.

In other words, six cents of the homeowner’s $1.21 tax rate pays interest for bonds that provide no leverage.

The True Scoop on Virginia’s State Budget Messby Peter Ferrara

Governor Warner is sounding pretty scary on the
state budget these days. He is so scary that after interviewing him one
badly confused Washington Post reporter recently told readers that
Virginia’s tax revenues are at their lowest point in 40 years. For the
record, the latest official forecast projects state general fund
revenues to total $10.7 billion this fiscal year. Forty years ago,
these revenues were $286.3 million, only about 3% as much as today.

The bottom line on the much ballyhooed budget
crisis is that all the supposed cuts and shortfalls you hear about are
cuts and shortfalls from the large state spending increases for this
year and next year that the Governor and the legislature adopted this
past winter. The key fact you must know is in the official state budget
documents and was widely reported when the budget was adopted earlier
this year. The total state operating budget adopted for this fiscal
year provided for a 7% spending increase over the prior fiscal year.

That state budget provided for an increase in
total spending in this fiscal year of $1.6 billion. Indeed, that
adopted operating budget set a record for spending, the highest ever in
the history of Virginia. The latest official state projections show
that the state’s revenues will be $523.8 million less than was
expected. That would still leave a spending increase in the current
budget of over a billion dollars.

Gov. Warner spent $215.9 million last year in
funds that were scheduled to be spent this year. Even if that is all
covered with further spending restraint this year as well, that would
still leave a spending increase in the current total budget of about
$860 million. The $1.5 billion budget shortfall the Governor talks
about actually covers three fiscal years, last year, this year, and
next year. The latest official state projections predict that revenues
for next year will be $760 million less than was expected when the
budget for that year was adopted last winter as well.

But that budget provides for another $1.7 billion
in increased spending over this year. So even with the revenue
shortfall, state spending next year would still increase $940 million.
The budget problem has arisen because the Governor and the legislature
just tried to increase state spending too much and too fast, before the
economy and revenues had recovered from the recent slowdowns. After the
enormously rapid state spending growth of the late 1990s, continuing
through 2001, a couple of years of restrained spending growth would be
quite desirable.

All of the Governor’s budget hysteria is part of
the effort to trammel voters into supporting the permanent 11% sales
tax increase on the ballot this fall. The Governor wants these sales
tax increases to bail out his budget mess so he can quickly resume
rapid spending increases. The sales tax increase for transportation
would reduce the pressure to spend other state funds on that critical
need, allowing the state to spend more on other big-government
boondoggles.

The hot new debating point among the sales tax
increase proponents is to ask what is the alternative to their supposed
solution to Northern Virginia’s transportation problems. Most of all,
the budget hysteria is meant to obscure the true alternative solution
that would be supported by the vast majority of voters.

The revenue projected by the state to be raised
by the 11% sales tax increase is equal to about one half of one percent
of total state revenues and spending each year. When the economy is
weak and revenues are flat, like now, that is no time to start a
massive, 20 year, road building and transportation program. Nor is it
the time to whack the economy with an 11% sales tax increase.

But as the economy and revenues recover, the
state could slow the annual increases in total state spending it would
otherwise adopt for everything but transportation, by a modest one half
of one percent each year. That money could then be directed to
transportation and would be enough to fund everything the sales tax
increase would fund.

So, for example, a budget with a 7% increase
overall, like the one adopted for this year, could be cut back to
provide for a still too-rapid increase of 6.5% for everything but
transportation, with the saved funds then devoted to increased
transportation funding. Or a budget with a total spending increase of
9.1%, like the one adopted for 2001, could be cut back to a still too
rapid increase of 8.6% on everything else, with the savings devoted to
transportation. Or a total budget increase like the 13.3% adopted in
1999 could be reduced to a still far too rapid increase of 12.8% for
everything else, with the savings again devoted to increased
transportation.

This just involves reprioritizing state spending
to meet the most urgent priorities of voters. The state’s political
establishment doesn’t want to do this because it has been taken over by
big spending liberals who want massive long term spending increases on
everything wxcept transportation. But that is going to change soon.

Anti-Tax Candidate Wins Special Election!

On Tuesday, August 6, over 18,000
voters cast their ballots in a special election to choose a State
Senator to fill the rest of Warren Barry’s unexpired term in Virginia’s
37th Senate District. With a turnout of 16%, which was higher than expected for a summertime special election, anti-tax Republican Ken Cuccinelli won a resounding victory. Ken Cuccinelli defeated pro-tax Democrat, Kathy Belter, by a margin of 55% to 45%.

Both candidates strongly championed their respective tax platforms.
Candidate Cuccinelli did not shy away from his anti-tax stance. He
"fiercely opposed both the proposed [sales] tax increase and the idea
of holding the referendum in the first place" said FCTA 2nd
Vice President, Peter Ferrara. During the election race, Cuccinelli
portrayed himself as potentially the only anti-tax legislator in all of
Fairfax County. R. H. Melton of the Washington Post reported that "Cuccinelli made his opposition to higher sales taxes a centerpiece of his GOP campaign."

In contrast, candidate Kathy Belter proudly trumpeted the need for a
tax increase. Calling Ken Cuccinelli "an extremist who is out of the
mainstream", Belter cited the dire need of Northern Virginia to solve
its traffic problems with an increased sales tax. She also hinted that
voter approval of this year’s sales tax referendum could open the door
for other tax-raising referenda in the future. Even some Republicans
said an anti-tax candidate like Cuccinelli could not win in Northern
Virginia.

Unfortunately for the high-tax, big-government crowd, the voters of the 37th
Senate District thought differently. While Ken Cuccinelli rolled to
victory by over 1,800 votes, the regional sales tax referendum
supporters tried to downplay the significance of the special election,
Delegate John A. Rollison III, R-Woodbridge, one of the referendum's
strongest supporters in the General Assembly, refused to draw
conclusions. "I wouldn't try to overhype an election that had 16
percent participation," he said to the Northern Virginia Journal newspaper.

However, many people saw the election as a referendum on the
upcoming sales tax referendum. Although Kathy Belter had a huge
fundraising advantage due to contributions from developers, unions, and
other pro-tax special interests, her campaign seemed to flounder upon
the tax question. Ignoring the spin from the proponents of the regional
sales tax referendum, Kathy Belter admitted to the Washington Post that anti-tax sentiment played "a major part" in her defeat.

Ken Cuccinelli’s victory in the 37th Senate District special election bodes well for the taxpayer cause in the future. He will be replacing pro-tax Republican Warren Barry,
who was a major supporter of the regional sales tax referendum and
several other tax-raising initiatives. Additionally, Sen. Barry
attempted to sue Gov. Gilmore in order to thwart the car tax cut.
Barry’s antipathy towards taxpayer advocates was so strong that he
frequently referred to anyone who would hold the line on government
growth as a "kook." As a state senator, Warren Barry often rated poorly
in the FCTA legislator scorecard. In fact, he received a zero rating by
the FCTA for the last legislative session due to his voting record in
the Virginia State Senate. Based on Ken Cuccinelli’s campaign promises
and rhetoric, it can be assumed that he will do better than a zero
rating in next year’s General Assembly session.

This important victory by an anti-tax advocate has given renewed
courage to formerly silent, anti-tax candidates in other districts.
Similarly, some of the support for the regional sales tax has been
muted now that incumbents realize that they may have to fear taxpayers
more than they fear special interests with deep pockets.

-- Bradford Butler

Copyright 1999-2009 The Fairfax County Taxpayers
Alliance, Inc.

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